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The law against “too-big-to-fail” is making some banks “too-small-to-survive.”
New Democrat-inspired federal rules and regulations are dramatically jacking up lending costs while limiting access to capital needs of small businesses and individuals.
As one banker testified June 16 before the House Subcommittee on Economic Growth, Tax, and Capital Access, “New rules substitute Washington bureaucratic judgment for that of local bankers.”
In every community, banks are actively looking for lending opportunities, said the American Banking Association (ABA), the voice of the $13 trillion banking industry. But in the lingering Obama depression, all businesses, including banks, are fearful about taking on new financial obligations. Business failures and high unemployment have impaired credit quality and increased loan losses. Despite these headwinds, banks were able to originate about $1.7 trillion in new loans in the third quarter of 2010, the ABA said.
Today, bankers are asking more questions of borrowers, and regulators certainly are asking more questions of banks. Banks don’t turn down loan applications because they don’t want to lend. Lending is what banks do. But just as too much risk is too risky, regulations that discourage banks from making sound loans has severe economic results. Regulatory over reaction means fewer loans and can “set in motion a ‘death spiral’ where the borrower has to sell assets at fire-sale prices to raise cash, which then lowers the ‘market values’ of other assets, which increases the write downs the lender has to take, and so on,” noted the ABA.
At the June 16 House hearing, Thomas Boyle, vice chairman of State Bank of Countryside, in Countryside, Illinois, told the subcommittee that the “hundreds of new regulations expected from the Dodd-Frank Act…are slowly but surely strangling traditional community banks[.]” (The 2,253-page Dodd-Frank law is said to be the most complex financial law ever enacted. It was promoted as a way to stop the problem of too-big-to-fail. The result is some banks will be too-small-to-survive.)
“With the regulatory over-reaction, piles of new laws, and uncertainty about government’s role in day-to-day business of banking, meeting local community need is difficult at best,” testified Boyle. “Without quick and bold action to relieve regulatory burden we will witness an appalling contraction of the banking industry…that will inevitably translate into fewer loans to small business….New rules substitute Washington bureaucratic judgment for that of local bankers.”
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